Back to basics

He points out that "a large international brand reduces the risk for customers" because wherever they are in the world people will know that a particular hotel brand will always deliver a similar standard. Peter Vermeer, the vice-president for development of InterContinental Hotels Group, agrees. "The old stock is not up to the expectations of the modern traveller and the infrastructure of hotels was built in a different reality," he claims. The two companies have signed a multi-development agreement and together they have just held the grand opening of the Holiday Inn Express in Warsaw, the second hotel of the brand (a Holiday Inn Express is already operating in Kraków). Construction work on the Warsaw hotel, which offers 124 rooms, began on July 26th 2011 on a 0.2 ha plot. The plan is to develop 17 similar projects in 11 cities throughout Poland, including Warsaw, Kraków, Wrocław, Gdańsk, Poznań, Łódź, Katowice, Opole, Zielona Góra, Lublin and Szczecin. Heads of terms have been signed with investors for eight of these projects, while construction work on the Katowice hotel is due to start around April next year. The Holiday Inn Express brand has an average occupancy rate of between 75 pct and 80 pct and is the most profitable brand of the InterContinental Hotels Group.

Spartan approach

But according to Peter Vermeer, Holiday Inn Express is more than just a brand: "It is a philosophy towards investors," he says. Costs are cut to a minimum by offering a basic no-frills service. Hotels of the brand will serve guests breakfast, but not lunch or dinner, because extra meals mean a larger kitchen with larger fridges and more staff. Room service is equally unavailable, while the total build area divided by the number of rooms should be no more than 32-34 sqm. This spartan approach results in a much better grip on costs. Peter Vermeer explains that in such a business model the marginal costs are higher than the fixed costs, meaning that the cost of each room can be calculated with far more precision than if the chain offered more services. This in turn is an added attraction to financiers (who might not be very knowledgeable of the hospitality industry), because it means that the profit and loss account is easily explainable to them. "The project must be monkey-proof - everyone must understand it. We have worked hard as a company to make a product that fits the needs of the developer, financier and operator. In these difficult times Holiday Inn Express hotels still receive financing and still get built," Peter Vermeer claims. But this is not the only factor in the success of the chain.

Miguel Martins stresses that it is good value for money in relation to the investment levels. "When a guest has a product that is good value for money, it means that I was able to control my development costs. Otherwise I would have been spending money for fun, which is not why I am here." Peter Vermeer elaborates and explains that this is to do with the 1,000 to one rule, which he uses as a back-of-the-envelope method to calculate costs: for every EUR 1,000 spent on developing a room, a hotelier must charge an average daily room rate of EUR 1; so if the average price of a hotel room costs EUR 60,000 to develop the ADR must be at least EUR 60 for the project to be viable.

Mixed-use location

But viability, as everyone knows, is also dependent on location. Charles Kemmons Wilson, the founder
of Holiday Inn, would assess how good a location is by looking out of the top window of a hotel. If he could see 60 pct of where his business would be generated, then it was a good location. The Warsaw hotel, being based in the Poleczki Business Park development, looks out over the airport, the Mokotów business district and the offices in the 210,000 sqm park itself. Indeed, most of the proposed hotels in the chain are to be built in mixed-use developments and act as anchors to attract office tenants. It's still early days and the brand has yet to make an impact on the Polish market, which is why InterContinental Hotels Group continues to be on the look-out for potential development partners. After all, as Peter Vermeer says: "The more hotels you have, the better for the brand name."

Alex Hayes